Restaurant owners are legally required to buy comprehensive general liability insurance as well as workers’ compensation insurance, property insurance, and in certain cases automobile insurance. To prepare for business-related calamities, many entrepreneurs work with risk management companies to insure against a host of issues ranging from faulty construction and workers’ compensation to an array of harassment issues in the workplace. Many companies now offer bonuses and incentives to employees based on the number of “safe days” spent at the workplace that go on without any injury. The range of tools for employers to control risk cost ranges from positive reinforcement initiatives like bonuses and rewards to punitive measures against those that continue to break safety rules.
Dennis Healy, a risk management consultant with BBSI, also known as Barrett Business Services, has spent more than two decades dealing with some of the toughest and most complex insurance problems. Based in Ontario, California, BBSI provides a range of business solutions to more than 3,000 companies, and it’s employees such as Healy who are the company’s top troubleshooters. A former Los Angeles Police Department officer who worked on security and insurance issues at the Los Angeles Daily News, Healy answered a wide array of questions about the growing field of risk management and its importance for small business. Excerpts:
What is risk management?
There are four basic principles of risk management.
1) The first is identifying any hazards within the workplace.
2) Number two, analyzing those hazards to determine whether they can be engineered out or if they happen to be necessary evils that can safely—and legally—be worked around.
3) The third principle is to control potential hazards through proper safety programs.
4) And finally, financing risk insurance policies.
Does risk management only cover workers compensation or other issues as well? What if a deal falls through before a restaurant is open? Does risk management cover such scenarios?
Workers comp gets the most play in California because it’s a big cost center for employers. But risk management deals with all kinds of other risks and unforeseen events, whether they’re related to liability, property, automotive, mergers and acquisitions, construction, business interruption, extra expenses, earthquakes, reputation, cyber—the list goes on and on. You can insure against defects in workmanship, defects in construction. If you have a loss as a result of such negligence, you can insure against that. Anywhere there’s risk there’s the ability to affect that risk. And everything that’s a risk to a business is pretty much included in that.
Let’s say an entrepreneur is constructing a building for a restaurant. Can he buy risk insurance against something he neglects to do and is legally required to, such as, say, failure to follow city building codes?
No. You cannot insure against anything illegal. It’s illegal to insure an illegal act. However, you can have defense costs insured. Let’s take the example of what we call employment practices liability insurance. That’s the stuff that covers you against sexual harassment, wrongful termination, age discrimination, racial discrimination, etc.—what we call touchy feely things. We can’t insure a judgment against you. If it’s alleged that you sexually harassed somebody and you go to trial and you lose, you must pay the judgment—any punitive damages, any awards—are out of your pocket. You cannot insure against that. But what you can insure is all the legal defense costs and out of courts settlements.
A lot of small business owners sign contracts and clauses with their employees. What’s the wisdom of having a mediation clause in a contract—or some other kind of safeguard that protects employers from potential “class-action” types of lawsuits?
What it boils down to really is that workplace disputes cost a great deal of time and money for a business. They’re expensive to litigate and deal with. Arbitration is most often faster and cheaper. The other thing is that jury awards are very unpredictable. You don’t know what a jury is going to give you—and more often than not juries do not decide in favor of employers. If you look at the jury make-up today, they’re mostly middle class working-type people who have a very sensitive spot for employees.
The employer is still perceived today as the “big bad guy” in the equation. And so a lot of time jury awards are totally “out of whack”. Arbitration, on the other hand, gives an opportunity for the employee and the employer to come together for a mutual resolution of the dispute. So, once you extract the litigation process from the equation and go to mediation—I’ve been to several mediations in my career—the process really becomes a negotiation, a discussion rather than a confrontational situation.
What’s your general advice for the small business owner in helping keep costs down in the area of workers compensation, including injuries and other risks?
First of all, workers compensation insurance is driven by what’s called “loss sensitive.” It’s really no different than your automotive policy—if you don’t get tickets and don’t get into accidents you pay one rate. If you get lots of tickets and get into lots of accidents you pay a much higher rate. So what we refer to as “frequency” in the insurance business—or the number of injuries—really starts with keeping your injury count down. Reducing the number of injuries in the workplace ultimately will keep your costs down because without injuries you don’t incur workers comp costs.
Underwriters looks at an account by what they believe will be the losses for that particular account. They try to project, to the best of their ability, what kind of losses they foresee, based on the type of industry, the number of employees and several other criteria. So the best thing you can do to keep such costs down is to reduce your exposure by eliminating or keeping your number of workplace injuries to a minimum.
How do you feel the field of workers comp has changed in the past five years?
When we talk about workers comp we really have to talk about California’s workers comp because there are different statutes for different states and my comments are limited to the state of California. The state of California is a Democratic state driven by labor. Organized labor really drives the politics in the state of California. If you look at the last five years you’ll see workers’ benefits continue to increase for the injured worker. This dramatic change has been seen through the increase of benefits. Employers have tried on several occasions to put forth legislation to reduce workers comp costs by ways of Senate Bill 899 and Senate Bill 866. But really, what happens is that the applicants’ attorneys just have to figure out a way to get around the system.
Workers comp is what is known as a “no-fault system“. There’s what’s called “exclusive remedy” within workers comp. That means that the only remedy for an injured worker is through workers compensation insurance, provided the employer has workers compensation. So that continues to become a breeding ground for injuries because all you have to do is establish 1% causation by the employer and the employer then picks up the whole cost. So in this liberal environment we’re seeing a spike in claims and a spike in compensation over the last five years.
Where do you think we’re going to be five years from now?
I think it’s got to level off. The cost of workers compensation can’t continue to grow with the double-digit increases that we’ve seen over the last five years. Otherwise it’s simply going to price employers out of the market. If you have a company—let’s say you’re not Zankou Chicken and you’re building widgets—you don’t have to be in California. You can do that business in another state. In fact we’ve seen an exodus of businesses from California as a direct result of high workers comp premiums. It’s just too darn expensive. Some employers pay up to 30% of their net revenue on workers comp insurance premiums. That’s just ridiculous. And so, I think there’s got to be a slowdown to it. There’s got to be legislation—employers have to get involved on the legislative and political level to put pressure on lawmakers to turn the system around because the system is broken.
What about Obamacare—the Affordable Care Act? After the Republican’s midterm victory in November 2014, Obamacare might or might not get repealed. But how should employers prepare for Obamacare if it doesn’t get repealed?
That’s not my expertise, but Obamacare is becoming its own world. Like workers comp, there are people developing expertise just in Obamacare. Based on my experience and what I’ve seen so far, I think it’s still extremely unpredictable. We have yet to determine whether it’s going to work or not. There has been no underwriting of Obamacare. People are just taking a guess and nobody knows what the net effect is going to be. Nobody knows who’s going to sign up and who’s not going to sign up. There’s still a cost—it’s not free healthcare, it’s not national healthcare. It’s basically creating a scenario in which people have access to healthcare based on their level of income.
But in the world of benefits, there’s such a thing as “adverse selection.” To understand what it is, consider that the whole purpose of insurance is to spread risk out over a large pool of people. That is, some people are healthy, some people are sick. Generally, you have more healthy people than sick people—and that’s how insurance works: Healthy people help pay for the sick people.
Adverse selection is when you have more sick people than healthy people. Who would sign up for Obamacare and pay those kind of premiums if they’re healthy? You’re not getting 18- to 20-year-olds or 25- to 30-year-olds signing up for Obamacare. That’s the age bracket that helps offset the costs of insuring people who are 50, 60 or 70 years old. So we’re going to have extreme adverse selection. I believe Obamacare is going to lose money. And then it’s going to be a question of whether they want to tax it or whether they want to put it on the backs of employers, whether they want to create rates that probably won’t be affordable to the average person. So, I just don’t see it working in the long run.
What’s your opinion of the posters some employers put at their businesses—such as posters in restaurant kitchens that tell workers how to prevent injuries? Or posters that point out certain laws—for example, laws regarding fraudulent workers comp claims, which carry prison sentences and fines. Do you think it’s helpful to warn employees about such issues?
Posters are tools in a toolbox. Posters alone are not going to solve a problem. But they’re part of a bigger picture. Everything we can do to bring awareness to this issue is good. But I should point out that we don’t have a lot of fraud in workers comp. Fraud is simply defined as claiming something happened when it never happened. That’s not our big issue. We don’t get a lot of people coming in saying, “This happened…”—when it didn’t happen.
Fraud often occurs more often with doctors, physicians and lawyers who are part of litigation. That’s where we really find fraud. What we see with employees are issues of abuse. Abuse of a very liberal system. For example, an employee comes in and says, “I hurt my arm today.”
And the employee goes to the doctor and it turns out that the arm is hurt. Then, all of a sudden, the attorney adds to the diagnosis the employee’s shoulder, the neck, the back—all these other body parts—and sexual dysfunction, gastrointestinal disorder, sleep disorder. Because the attorney is trying to drive up the permanent disability rate. And that’s pure abuse. And if you notice, those are all subjective complaints, not objective complaints.
What I mean by that is if you take an X-ray of my arm, yes, it’s broken. There’s no doubt about it. But doctor’s can’t measure pain—there’s no test for pain. And there’s no test for these other things, these subjective injuries. If somebody says they have sexual dysfunction, they have sexual dysfunction. If somebody says they have sleeplessness, they have sleeplessness. There’s no way to disprove such allegations, and the employers end up buying them. So, there’s a little bit of fraud. But there’s a lot of abuse. And each one of the measures such as posters in the workplace goes into helping us at least create an environment within a given workplace that makes people aware. Maybe it changes one or two people’s minds. But again, a 65-mile per hour speed limit doesn’t make everybody slow down. People still do 70. But the speed limit does create an awareness.
Often, when employees get into trouble or are given job-related warnings that make them feel like they’re about to get fired, all of a sudden the employer is faced with injury claims. The employer has to pay higher workers’ comp premiums—and insurance companies also suffer because they have to pay these ridiculous claims. How do we deal with such problems?
The biggest issue that we have today in workers comp is what’s called “post-termination stress claims.” These happen after the employee has left the employer and the employee turns around and rewrites the book—the facts about what happened over a period of time. And the employer has no defense—because that employee is already gone. Post-termination stress claims—post-termination claims of any kind—are very difficult claims to deal with, whether they’re regarding cumulative trauma or cumulative stress, whether it’s, “I-hurt-my-back-doing-something-three-months-ago-and-nobody-knew-about it ” kind of claims. Those are the biggest challenge for employers.
The other thing is the employee holding the employer hostage during disciplinary actions. There’s no doubt we have a broken system. If I lay off an employee, the remedy for that employee is to go to the Employment Development Department and collect unemployment insurance. It pays around 300 dollars a week. If the same employee can show an injury in the workplace, they get two-thirds of their average weekly wage—tax-free—medical care, transportation costs, mileage driving to and fro from the doctor’s appointment for up to two years.
So there is a big incentive for our employees to claim something related to work. And word gets out. People talk. They say, “Hey, you don’t want to go out just on unemployment. I’m sure something happened to you while you were working there. Didn’t your back hurt? Didn’t your elbow hurt?”
The big thing is how do we prevent that? And that’s what we in risk management struggle with on a daily basis. And what I’ve seen in my 25 years of doing risk management is that the issue really is cultural. And by culture, I mean the work environment, not race, religion or creed. When an employee begins to feel an us-against-you mentality, when they’re no longer treated with dignity and respect, when they feel they’re being singled out, all of a sudden they get into this mode of, I’m going to get back at you.
There is a way to deal with employees by using a progressive disciplinary program—a verbal warning followed by a written warning in an escalating manner. Nobody should be fired and be surprised that they got fired. That’s a failure of management. People who get fired as a result of for-cause terminations and are completely shocked are people who have never been told what they’re doing wrong. And those are the people who retaliate and come back at the employer. And they know that’s the easiest way to get back at an employer.
How should employees report claims? Is it better for employers to have an in-house doctor? Or is it better for employers that claims go through, say, an emergency hospital?
Up to this point we’ve talked about preventing claims, and now we’re moving on to the post-claims status. So, instead of becoming proactive we’re becoming reactive. There are some things we can do. First of all, an employer should effectively manage claims. The Occupational Safety and Health Administration (OSHA) has very clear guidelines about what constitutes first aid and what doesn’t. In the case of a minor first aid injury, employers can absolutely handle them on their own and pay for them on their own.
The problem that employers get into with unreported claims have to do with very specific statutes about workers comp that give you a defense. But you must comply with those in a timely manner to get your claim going, or you lose your ability to defend your claim. If you don’t do that, the employee will go wherever he wants—to any doctor he wants—and you lose complete control over the situation.
Even if you’re dealing with an internal clinic, the truth of the matter is that while such clinics are good for the honest guy—the honest employee—they don’t have any effect on the guy who wants to play games. The person who’s going to play games is not going to abide by your clinic. And frankly, employers are taking a big chance when they fail to report claims by keeping things in-house. It’s a risk vs. reward situation that is driven by several factors, such as the relationship with the employee.
What’s the best way to train staff in order to reduce workplace injuries and claims?
The best training is to develop a safety culture. I can train you how to bend, how to lift something, how to use a sharp knife. But when I do training, I refer to it as the “mommy culture.” If you have a child and you see the child doing something unsafe, what do you do? You say, Stop. If you have a hot oven and you see a child walking toward the oven, you say, Stop. But for some reason, we don’t do that in the workplace. We’re all so afraid to tell somebody else that they’re not using a knife safely or not putting up a sign while mopping a wet floor. Employees are so afraid to tell one another anything because they feel it’s confrontational to do so. But you have to instill among your employees the right, the ability and the expectation to do that. A manager’s eyes can’t be everywhere. The checks have to come from within the environment. Unsafe behavior cannot be acceptable.
If an employer provides employees all the resources to guard against sexual harassment in the workplace, is the employer still liable in cases regarding sexual harassment of employees by other employees?
Where employers get into trouble is in allowing an environment of sexual harassment to exist or in failing to intervene in instances where sexual harassment exists or is alleged. Sexual harassment is very rarely a one-time deal. It’s usually a pattern, a culture. It’s best to have zero tolerance for any type of sexual harassment, and to investigate complaints aggressively to make sure you’re not creating an environment conducive to sexual harassment.
What are some of the most dramatic risk management claims you’ve dealt with in your career?
I’ll give you a couple. I had a newspaper home delivery contractor in northern California who was in a minivan early one morning along with her husband and three children. They were helping her deliver the newspapers. The children would fold the papers in the back seat and the husband and wife would throw the papers into residences from the front seats—one from the left window and one from the right.
They were going up the highway minding their own business. It was about 5:30 in the morning. And unbeknownst to them, the California Highway Patrol was paralleling a wrong-way driver on the freeway. The highway patrol was not on the freeway because they don’t go the wrong way in pursuits. They were on the side of the road, trying to get the wrong-way driver to pull over. But he wouldn’t pull over. And he hit the newspaper delivery contractor and her family head on.
He killed the mother, killed the father and critically injured all three kids, who ended up on ventilators, with severe head injuries. They were all vegetables. The gentleman who hit them had a 0.28 blood alcohol level, which is way above the legal limit [of 0.8]. He survived. They took him to the hospital and notified his next of kin, which happened to be his sister at the time. And the first thing the sister said when she came to the emergency room was, Please tell me he didn’t kill somebody this time.
Turned out the guy had three previous DUIs. He had been drinking all night. And he hit our people head on. That claim, because we were self-insured, cost the company I worked for more than $10 million in workers comp. We had a very large deductible, but we were on the hook for the two death claims and for temporary total disability for all three kids for the rest of their lives. Most of the money—the big cost—went into a trust fund for their future medical care. The kids’s next of kin—aunts and uncles—got the majority of the actual cash.
I’ll give you another incident. I had a reporter who worked at the Los Angeles Daily News. The offshore fishing season had just opened up and he was writing about it for the paper. So he chartered a boat through the Daily News out of Oxnard and went out to sea. The way it works is that you get on the boat at, say, 11 o’clock in the night, you sleep on the boat, you wake up the next morning and fish.
Somewhere in the middle of the night, the reporter got seasick. He went out and was vomiting overboard. The boat is supposed to have a deck watch at all times, especially on these amateur boats, to make sure everybody’s okay. But there was no deck watch, which we later learned. And we later learned that the people who were on the boat were all smoking marijuana and nobody was paying attention. They didn’t notice our man was overboard until the next morning.
A Coast Guard was initiated for two days. The reporter’s body was not found. The Coast Guard seized the boat and drug-tested the crew—that’s how I found out they had been smoking marijuana. The reporter had three or four kids. The paper ended up paying a death claim on him. It was $150,000. And we ended up paying temporary total disability on each of the kids until they were 18 years old. It was another multi-million-dollar claim that we had nothing to do with. It wasn’t our fault—it was the boat’s fault. We subrogated against the owner of the boat—that is, we tried to get some of our money back. But we had a $100,000 insurance policy. So we got back $100,000. But as a company it cost us millions of dollars.
What are your top three do’s and don’ts for business owners on the subject of risk management?
My top three do’s are, number one, create a safety culture. Number two, treat all employees with dignity and respect. These are all somebody’s mother, brother, sister, family, friend. I’m not saying don’t discipline them. Just treat them like you’d expect your own family member to be treated.
Number three: Be aggressive about your claims. What I mean by that is, if there’s an issue with an employee involving a legitimate injury, give that employee everything that’s coming to him. If the employee needs his job to be reassigned, reassign it. Modify the employee’s duties so he’s not impacted financially. Work with the employee. If he needs help, help him.
By the same token, if you’ve got an employee who’s playing games or is being abusive or fraudulent, then attack that employee with the same vigor and force. Go after that person aggressively, with an injury investigation. Conduct a witness investigation. Look at your cameras. Build a case.
So, if they’re legitimately hurt, give them everything you’ve got within the system. God bless them. But if they’re playing games, make it clear that you’re going to seek them out and destroy them.
Now, my top three don’ts. One: Never put production or sales above safety. Two: Don’t create unsafe conditions or fail to act if you see something unsafe. Number three: Don’t fail to report a claim because you think it’ll cost more money.
The following list sets forth the minimally acceptable number and type of first-aid supplies for first-aid kits required under paragraph (d)(2) of the logging standard. The contents of the first-aid kit listed should be adequate for small work sites, consisting of approximately two to three employees. When larger operations or multiple operations are being conducted at the same location, additional first-aid kits should be provided at the work site or additional quantities of supplies should be included in the first-aid kits:
1. Gauze pads (at least 4 x 4 inches).
2. Two large gauze pads (at least 8 x 10 inches).
3. Box adhesive bandages (band-aids).
4. One package gauze roller bandage at least 2 inches wide.
5. Two triangular bandages.
6. Wound cleaning agent such as sealed moistened towelettes.
8. At least one blanket.
10. Adhesive tape.
11. Latex gloves.
12. Resuscitation equipment such as resuscitation bag, airway, or
13. Two elastic wraps.
15. Directions for requesting emergency assistance.
[59 FR 51672, Oct. 12, 1994; 60 FR 47022, Sept. 8, 1995]
Legal Employer Responsibilities
Under the OSH law, employers have a responsibility to provide a safe workplace. This is a short summary of key employer responsibilities:
1) Provide a workplace free from serious recognized hazards and comply with standards, rules and regulations issued under the OSH Act.
2) Examine workplace conditions to make sure they conform to applicable OSHA standards.
3) Make sure employees have and use safe tools and equipment and properly maintain this equipment.
4) Use color codes, posters, labels or signs to warn employees of potential hazards.
5) Establish or update operating procedures and communicate them so that employees follow safety and health requirements.
6) Employers must provide safety training in a language and vocabulary workers can understand.
7) Employers with hazardous chemicals in the workplace must develop and implement a written hazard communication program and train employees on the hazards they are exposed to and proper precautions (and a copy of safety data sheets must be readily available). See the OSHA page on Hazard Communication.
8) Provide medical examinations and training when required by OSHA standards.
Post, at a prominent location within the workplace, the OSHA poster (or the state-plan equivalent) informing employees of their rights and responsibilities.
9) Report to the nearest OSHA office within 8 hours any fatal accident or one that results in the hospitalization of three or more employees. Call our toll-free number: 1-800-321-OSHA (6742); TTY 1-877-889-5627
Keep records of work-related injuries and illnesses. (Note: Employers with 10 or fewer employees and employers in certain low-hazard industries are exempt from this requirement.
10) Provide employees, former employees and their representatives access to the Log of Work-Related Injuries and Illnesses (OSHA Form 300). On February 1, and for three months, covered employers must post the summary of the OSHA log of injuries and illnesses (OSHA Form 300A).
Provide access to employee medical records and exposure records to employees or their authorized representatives.
Provide to the OSHA compliance officer the names of authorized employee representatives who may be asked to accompany the compliance officer during an inspection.
Don’t discriminate against employees who exercise their rights under the Act. See our “Whistleblower Protection” webpage.
Post OSHA citations at or near the work area involved. Each citation must remain posted until the violation has been corrected, or for three working days, whichever is longer. Post abatement verification documents or tags.
Correct cited violations by the deadline set in the OSHA citation and submit required abatement verification documentation.
OSHA encourages all employers to adopt an Injury and Illness Prevention Program. Injury and Illness Prevention Programs, known by a variety of names, are universal interventions that can substantially reduce the number and severity of workplace injuries and alleviate the associated financial burdens on U.S. workplaces. Many states have requirements or voluntary guidelines for workplace Injury and Illness Prevention Programs.
Also, numerous employers in the United States already manage safety using Injury and Illness Prevention Programs, and we believe that all employers can and should do the same. Most successful Injury and Illness Prevention Programs are based on a common set of key elements. These include: management leadership, worker participation, hazard identification, hazard prevention and control, education and training, and program evaluation and improvement. OSHA’s Injury and Illness Prevention Programs topics page contains more information including examples of programs and systems that have reduced workplace injuries and illnesses.
Questions for Review
1) What is risk management?
Risk management is the
2) assessment, and
3) prioritization of risks followed by coordinated and economical application of resources to
2) monitor, and
3) control the probability and/or impact of unfortunate events or to maximize the realization of opportunities.
2) If an employer gives warnings or takes disciplinary action where it was warranted against sexual harassment in the workplace, can they still be held liable?
3) If the employer himself/herself was involved with sexual harassment and was found culpable in court, who would pay the settlement?
a) The employer would not have to pay the settlement out of pocket but the insurance company, if sexual harassment was covered, would pay for the defense attorney’s costs and fees to defend the case as well as any settlement
b) If it was settled out of court the insurance company that covers sexual harassment would pay for the settlement, however if the case was taken all the way to court and the employer loses the case the employer would pay that out of pocket
c) As long as those involved were mutually interested in each other, no one would have to pay
d) As long as training, warnings and posters describing consequences were present, the employer is not responsible when sexual harassment occurs.
4) Under OSHA’s rules, “whistle-blowers” are:
a) not protected; to each their own
b) are protected from any retaliation by their employer
c) not welcome to speak out when the employer has done nothing wrong
d) liable for their own mistakes